Failure to Record Reasons for Tariff Re-Categorization Objections Violates Principles of Natural Justice and Renders Order Unsustainable

The Appellant, a Government of India undertaking, operates a petroleum and diesel terminal in Mangalore and is a high-tension consumer of Respondent No. 2 (MESCOM).

Respondent No. 1 (the Commission) issued a tariff order on 14.05.2018, categorizing petrol/diesel and oil storage plants under the HT-2(b) "Commercial" category.

During the tariff proceedings, the Appellant filed written objections and suggestions on 02.03.2018, arguing that such plants should be classified under the HT-2(a) "Industrial" category.

Despite the Appellant’s participation in the public hearing, the Commission’s final order did not address these objections or provide reasons for maintaining the commercial classification.

The Appellant challenged the order as being non-speaking and in violation of natural justice.

1. Whether the impugned tariff order is sustainable despite being a non-speaking order that failed to consider the Appellant's objections and submissions.

2. Whether the Commission, while exercising quasi-judicial functions, is mandatorily required to provide reasons for its decisions in tariff categorization.

The Court applied the principles of Natural Justice and the requirement of a "Speaking Order" as a hallmark of the judicial system to prevent arbitrariness.

Section 62(3) of the Electricity Act, 2003, regarding the Commission's discretion in differentiating tariffs.

The "right to reason" as an indispensable part of the judicial process, as established in Raj Kishore Jha v. State of Bihar (2003) 11 SCC 519.

Recording reasons is an unqualified obligation for courts and tribunals to ensure clarity and transparency, as held in Asstt. Commissioner, Commercial Tax Deptt. v. Shukla Brother (2010) 4 SCC 785.

Treating unequals as equals (e.g., grouping essential infrastructure with malls/cinemas) violates Article 14 of the Constitution, per Mumbai International Airport Pvt. Ltd v. MERC.

The Tribunal observed that while the Commission exercises quasi-judicial functions in passing tariff orders, it is bound to evaluate every stakeholder objection and provide justifications for their acceptance or rejection.

Upon perusal of the impugned order, the Tribunal found a total absence of discussion regarding the Appellant’s justifications for industrial categorization.

The Tribunal reasoned that "reason" is the heartbeat of a conclusion; without it, the order becomes "lifeless".

The Tribunal rejected the Respondent’s argument that the classification should stand merely because it had been in place since 2003, stating that the Commission was legally required to have a "relook" based on the specific comments/justifications provided during the hearing.

The failure to explain why oil storage plants were grouped with commercial "malls and multiplexes" while "LPG bottling plants" were categorized as industrial rendered the order arbitrary and cryptic.

The Tribunal set aside the order on the limited aspect of categorization and remanded the case back to the Commission with directions to provide the parties an opportunity for a hearing and pass a fresh, reasoned/speaking order regarding the classification of petrol/diesel and oil storage plants within two months.

The appeal was allowed.